What You Need to Know About the Salary History Ban

Back in December, we blogged about how Philadelphia was the first city to pass a ban on companies asking job candidates about their salary history. A lot has happened in the news regarding this type of regulation since then, and we wanted to update you on where things stand as of now.

NATIONALLY: Last September, we reported about a bill that was introduced to Congress that is meant to combat pay inequality facing women and minorities. SHRM Online reported that the Pay Equity for All Act of 2016(H.R. 6030) would allow the U.S. Department of Labor to assess huge fines against employers who violate the law by asking questions about an applicant’s salary history. Prospective and current employees would also be able to file private lawsuits against employers who violated this legislation, receiving up to $10,000 in damages, plus attorney fees.

Like we’ve said before, that’s not chump change.

But that was back in 2016. While we don’t know how the new administration will handle this bill moving forward, we do know that H.R. 6030 is similar to some new state and municipal legislation already in effect. To help keep you informed, we’ve summarized some of the most recent news-making legislative efforts below.

PHILADELPHIA, PA: The City of Brotherly Love was the first city to enact legislation making it illegal for employers to ask job applicants for their salary histories. It also prohibits retaliation against prospective employees for failing to answer questions about what they previously earned. Complaints filed within 300 days to the city’s Commission on Human Relations could lead to $2,000 fines for employers and possibly damages, including the applicants’ attorneys’ fees.

NEW YORK CITY: Last December, New York Mayor Bill de Blasio‘s executive order went into effect making it illegal for city agencies to ask job applicants about their salary history. New York’s City Council is also considering enacting a similar measure citywide.

MASSACHUSETTS: While Philadelphia was the first city to enact such a law, this type of legislation is not just a municipal phenomenon. Massachusetts was the first state to pass a salary-history law last summer. Since then, similar bills have also been introduced to several other state legislatures, including Pennsylvania, New Jersey, Texas and Virginia.

NEW YORK: Governor Andrew Cuomo recently signed Executive Order 161 that prohibits state agencies from asking a job applicant for current or prior salary information before giving a conditional job offer. In addition, New York state agencies that already possess an applicant’s prior salary information are banned from relying upon that information to determine the applicant’s salary, unless otherwise required to do so by law or a collective bargaining agreement.

TEXAS: The Lone Star State recently began looking into its own form of legislation to ban wage history questions to job candidates. House Bill 290 was introduced in the Texas legislature, and it seeks to specifically amend the Texas Labor Code to prohibit sex discrimination in compensation, making it illegal for employers to include questions regarding an applicants’ wage history information on an employment application, to inquire about or consider their wage history information, or even obtain their wage-history information from a previous employer.

CALIFORNIA: The Golden State addressed salary histories in a 2016 amendment to its existing equal pay law, according to the Society for Human Resources Management (SHRM). As of Jan. 1, 2017, employers are prohibited from relying solely on an employee’s prior salary to justify a disparity in salary between similarly situated employees who perform very similar work. According to Bloomberg BNA, ambiguities in the new salary-history laws have many employers in California worried about a possible onslaught of claims against them based on unclear terms, such as “substantially similar” and “bona fide factor”. Trying to understand what these vague generalities mean in the workplace will likely turn out to be frustrating and time consuming for many businesses.

This type of wage-history legislation is continuing to trend. Other states that have enacted these types of pay equity bills in the last year include Maryland and New Jersey, according to the National Law Review. Several other states and municipalities, such as Connecticut, Indiana, Mississippi, Missouri and the District of Columbia, also have similar legislation pending.

Salary History is a Big Deal for Employers

Hiring is so expensive to begin with, and losing the ability to gauge pay based on previous employment in order to not to waste both the hiring manager and candidate’s time may make the process even more costly. Salary expectation is a huge factor for all parties involved, and this legislation would make it the elephant in the room. Small companies often don’t pay the same as larger ones, and they rely on the discussion of salary history to tout what they can offer beyond pay in order to compete.

Band-Aid Legislation on Salary

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“I understand the reasoning behind the legislation,” says Tina Hamilton, PHR, president of myHR Partner. “But the real issue is gender equality in setting pay within entire industries. Legislation should address that directly rather hitting small and mid-sized businesses with minor, incremental steps towards the greater goal that will hurt their ability to hire the right people.”

Hamilton notes that avoiding discrimination in all its forms is in a company’s best interest, and that examining hiring practices periodically to address issues is important. “Focusing on modern HR practices creates a better hiring process that protects your company from litigation, and promotes a work culture where employees are happier,” she adds. “It’s worth it on many levels.”

What You Can Do Now

“If you learn a candidate’s previous salary and find they were underpaid,” says Hamilton, “you can take the opportunity to show that your company has a commitment to equal pay by bringing it up during the negotiation.” Imagine the appeal to high-talent candidates and the positive brand-building buzz that could result from a company saying, “Based on your previous salary, we believe you were underpaid. Our company is committed to pay equality and would like to offer you $_____ instead.”

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Sadly, notes Hamilton, the only way to know if a candidate was previously underpaid is to ask. If new legislation prevents that, smaller businesses will especially be at a disadvantage because they won’t be able to present to candidates that they are committed to pay equality. “Open dialog matters.”

“Avoiding the appearance of discrimination is important, no matter what the future holds for some of these proposed laws,” says Hamilton. “Business owners may be surprised to learn that some of their practices can somehow be inadvertently construed as discriminatory.”

Some things to consider doing, she suggests:

Training will bring your hiring managers up to speed on regulatory compliance and best practices

Conducting an HR audit that includes your organization’s pay and hiring practices

Having pay practices in place that are clear to everyone, with structured salary levels, and make them realistic so that managers can stick to them

Making pay criteria objective and measurable, so that starting salaries, awards and raises are part of a fair formula

Documenting clearly what factors are used to determine salary, promotions, bonuses, etc.

Making sure your documents are user-friendly and archived properly

“A lot of good can come out of updating older procedures and documents, even beyond the issue of avoiding the appearance of discrimination,” says Hamilton. “like implementing streamlined processes and establishing ways to collecting useful data.”

An HR Audit Can Help You Avoid Discrimination Issues

The best way to avoid discrimination issues in the workplace is to make sure you’re compliant. Our HR audits will show you where your organization is vulnerable to accusations or discrimination, and we will help you remedy the situation with modern policies, procedures and practices, including how to properly react to complaints. Beyond being compliant, we can help you create a more productive workplace as well. Contact us today!

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You’ll discover:

Tips on hiring, screening, and interviewing

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Ways to put the “human” back in Human Resources

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New HR regulations and how they affect you and your employees

How small changes in certain processes can have big results

How to tell when partnering with an outside provider is in your best interest